USD/INR ticks higher at open while US-India trade deal likely finalize before deadline
- The Indian Rupee trades mildly lower against the US Dollar as the latter stabilizes after surprisingly upbeat US JOLTS Job Openings data.
- Trump’s comments signaled that the US and India will finalize a trade agreement before the July 9 deadline.
- Fed’s Powell reiterates that the central bank needs more data before considering interest rate cuts.
The Indian Rupee (INR) ticks down against the US Dollar (USD) at open on Wednesday. The USD/INR edges higher to near 85.75 as the US Dollar strives to gain ground after the release of the surprisingly upbeat US JOLTS Job Openings data for May. The data showed on Tuesday that US firms posted 7.769 million jobs, higher than 7.395 million in April.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks up to near 96.75 during the press time. On Tuesday, the USD Index attracted bids after posting a fresh three-and-a-half year low around 96.40.
Meanwhile, the outlook of the Indian Rupee has improved as comments from United States (US) President Donald Trump have signaled that Washington and New Delhi are close to striking a trade deal with much less tariffs ahead of the July 9 tariff deadline.
US President Trump has also expressed confidence that lower tariffs from India will allow US companies to compete with Indian businesses, a scenario that could weigh on sales of Indian manufacturers.
“I think we are going to have a deal with India. And that is going to be a different kind of a deal. It is going to be a deal where we are able to go in and compete. Right now, India does not accept anybody in. I think India is going to do that, and if they do that, we are going to have a deal for much less tariffs,” Trump said, ANI News reported.
This comes after India’s chief negotiator Rajesh Agrawal extended his stay in Washington to finalize a trade agreement before the tariff deadline, the report from ANI showed.
Daily digest market movers: Indian Rupee exhibits subdued performance against US Dollar
- The Indian Rupee trades subduedly against the US Dollar as the latter gains temporary ground after surprisingly upbeat US Job Openings data.
- However, the outlook of the US Dollar remains weak as traders remain confident that the Federal Reserve (Fed) will reduce interest rates in the September meeting, and uncertainty surrounding the tariff deadline and fears of widening US fiscal deficit following the imposition of Trump’s so-called “big beautiful bill”.
- Meanwhile, Fed Chair Jerome Powell reiterated while speaking at a central bank gathering in Portugal on Tuesday that the central bank needs more time to learn about the impact of new economic policies on inflation and the labor market before considering monetary policy adjustments. "We’re simply taking some time, and as long as the U.S. economy is in solid shape, we think that the prudent thing to do is to wait and learn more and see what those effects might be," Powell said, Reuters reported.
- For more cues on the monetary policy outlook, investors await the US Nonfarm Payrolls (NFP) data for June, which will be released on Thursday. Traders could raise Fed dovish bets if data points to signs of weakness in the labor market. On the contrary, upbeat job data would force traders to pare bets supporting Fed interest rate cuts in September.
- In Wednesday’s session, investors will focus on the US ADP Employment Change data for June, which will be published at 12:15 GMT. Economists expect US private employers to have hired 95K fresh workers, significantly higher than 37K in May.
- On trade discussion with Japan, Washington has expressed uncertainty over striking a deal with Tokyo before the tariff deadline on July 9. “We’ve dealt with Japan. I’m not sure we’re going to make a deal. I doubt it," Trump said while speaking to reporters on Air Force One earlier this week.
- The passage of Trump’s tax and spending cut bill to the House again for further consideration before moving to President’s desk after clearing by Republican-controlled-Senate has prompted fears of widening US debt. Economists expect Trump’s bill could increase US debt to $40 trillion over a decade, a move that would worsen the US sovereign credit rating, which was already downgraded from Aaa to Aa1 by Moody’s Rating in May.
Technical Analysis: USD/INR oscillates inside Tuesday’s trading range
The USD/INR pair oscillates inside Tuesday’s trading range around 85.75 on Wednesday. The outlook of the pair remains bearish as it stays below the 20 and 50-day Exponential Moving Averages (EMAs), which trade around 85.79 and 85.70, respectively.
The 14-day Relative Strength Index (RSI) stays below 50.00, indicating that the trend is on the downside.
Looking down, the 200-day EMA around 85.35 will act as key support for the major. On the upside, Wednesday’s high of 86.13 will be a critical hurdle for the pair.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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